Application-to-Person Messaging - Helping enterprises to respond to consumers' changing communications behavior - Mobile Marketing Association

 
Application-to-Person Messaging - Helping enterprises to respond to consumers' changing communications behavior - Mobile Marketing Association
Ovum
                                          TMT intelligence |

Application-to-Person Messaging
Helping enterprises to respond to consumers’ changing
communications behavior

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Application-to-Person Messaging - Helping enterprises to respond to consumers' changing communications behavior - Mobile Marketing Association
Contents
Introduction......................................................................................................................................................4
         Ovum view......................................................................................................................................................4
         Key findings...................................................................................................................................................5

Key trends in messaging..................................................................................................................................6
         P2P SMS declines as use of OTT communications apps grows..................................................................6
         Enterprise adoption of A2P SMS strengthens..............................................................................................7
         A2P SMS commoditization drives innovation...............................................................................................8
         Case study: MakeMyTrip...............................................................................................................................8
         Service providers lay foundations for IP-based communications.............................................................10
         OTT communications apps seek greater engagement with enterprises..................................................10
         Case study: Nexmo......................................................................................................................................11

Enterprise use of messaging – current status...............................................................................................12
         SMS remains key, but instant messaging is gaining.................................................................................12
         SMS is consistently used for customer-facing activities,
         but use varies for employee communications...........................................................................................13
         Communications-related activities are predominant use cases
         for external and internal interactions........................................................................................................14
         Email, voice, and social media are the main alternatives to SMS.............................................................15
         Destination reach and price rate highly in choice of distribution channel................................................15

Enterprise use of messaging – future developments....................................................................................16
         More than half of enterprises expect their use of SMS, social media, and email to increase.................16
         OTT messaging apps are expected to be complementary to SMS rather than a substitute....................17

Enterprise use of WebRTC..............................................................................................................................17
         High interest in WebRTC, but few deployments.........................................................................................18
         WebRTC expected to substitute A2P SMS..................................................................................................19

Summary........................................................................................................................................................19

Appendix.........................................................................................................................................................20
         Methodology................................................................................................................................................20

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Application-to-Person Messaging - Helping enterprises to respond to consumers' changing communications behavior - Mobile Marketing Association
About the authors

                         Pamela Clark-Dickson

Pamela Clark-Dickson is a lead analyst in Ovum’s Consumer Services practice. Her focus is on messaging, OTT
communications (messaging, VoIP and video), social media, rich communications and WebRTC. Pamela regularly produces
assessments of the strategies of telcos, OTT communications providers and social media companies with respect to next-
generation communications services, as well as research on the enterprise messaging market, including telco and vendor
strategies for the provision of A2P messaging services. She is also a regular speaker and chair at industry conferences, and is
frequently called on to provide media comment on topical and trending developments.

                         Neha Dharia

Neha Dharia is a senior analyst in Ovum’s Consumer Services telecoms research practice, and has a focus on mobile media,
social networking, and communications. Neha leads Ovum’s messaging research stream and has written a series of reports
around the impact of OTT on SMS, creating thought leadership in the industry. Her other work includes market sizing,
forecasting, and in-depth research on topics such as the digital games industry, mobile payments, and mobile value-added
services (VAS). Neha’s research is frequently quoted in the international press and she often contributes to the broadcast media.

                         Angel Dobardziev

Angel Dobardziev is a Consulting Director with Ovum’s Consumer, Media, and Entertainment Practice, where he provides
custom advice and consulting services to telecoms and media service providers and technology vendors, in addition to
contributing thought-leading research on the consumer, media, and entertainment markets.

                                                                                   © 2016 Ovum. All rights reserved. www.ovum.com   3
Introduction
Ovum view
Changes in consumers' communications behaviors are driving the evolution of the application-
to-person (A2P) mobile messaging market. For the moment, SMS remains a key mobile
communications channel for enterprises to reach consumers and employees. It is inexpensive,
universally available on devices, reliable, and quick.

The distinctive qualities of SMS make it attractive to multiple industry verticals, including retail,
media, Internet, telecoms, banking and finance, and travel and hospitality. In addition, OTT
communications apps have become one of the largest enterprise users of SMS, the service that
they were intended to replace, primarily for user authentication and verification. Other use cases
for SMS broadly cover communications, transactions and payments, and content distribution.

However, the overall trend is toward mobile consumers using third-party apps for services such
as instant messaging and voice and video calling. This is a dynamic for which enterprises need to
prepare themselves if they are to remain relevant to their customer bases. Services such as Viber,
WhatsApp, and Facebook Messenger will soon bring a global dimension to A2P messaging via
communications apps. So far OTT services have had most of their success in Asia, where WeChat,
Line, and Kakao Talk all generate significant revenues from A2P.

App-based push notifications are becoming an established method by which enterprises interact
with their customers, but they are not yet widely used. This is because of the effort required from
an enterprise to develop an app and then to convince mobile users to download it. Consumers are
also wary of opting into a large number of push notifications.

MMS remains a telco service, but it is expensive by comparison with communications apps,
meaning that those users who wish to send pictures or videos are more likely to use an app.
From an enterprise perspective, MMS still has a following in the media and content and telecoms
service provider industries, but primarily in organizations' sales and marketing functions.

It is important for enterprises and the wider industry to have insight into how the A2P messaging
market is developing. From a qualitative perspective, trends include the emergence of new
communications channels and the way the supply chain is innovating to provide an improved
experience for end users and enterprises (for A2P SMS as well as for emerging technologies).
From a quantitative perspective, it is useful to measure the extent to which enterprises are
currently using A2P SMS to interact with customers and employees, the level of penetration of
the services they have recently added to their multichannel arsenals, their expectations for their
future use of communications channels, and the degree to which they are engaged with emerging
technologies such as WebRTC.

                                                                  © 2016 Ovum. All rights reserved. www.ovum.com   4
Key findings
• The popularity of communications apps is causing a decline in mobile operators' person-to-
  person (P2P) SMS traffic and revenues, although A2P SMS remains a key communications
  channel for enterprises in multiple industry verticals and across multiple use cases.
• To ensure the continued efficacy of A2P SMS, connectivity service providers, cloud
  communication companies, and vendors are all working to make it easier for enterprises to
  include SMS in their business processes. They also aim to ensure the best possible quality of
  experience, particularly as commoditization creates a challenging business environment for
  traditional players.
• Consumers' communications behaviors are changing, which has already resulted in an
  expansion of the channels through which enterprises interact with their customers and
  employees. Relatively new channels for enterprises include social media and social networking,
  app-based push notifications, and communications apps.
• The A2P messaging industry is also working to make it easier for enterprises to engage with the
  providers of communications apps, so that they can interact with their customers or employees
  using these apps. WhatsApp is the most recent chat app provider to commit to enabling its
  users to interact with enterprises.
• An independent survey conducted by Ovum has confirmed that SMS remains the primary
  mobile-specific data service that enterprises use to contact their customers – and by a wide
  margin. However, instant messaging is the next-most-used service, indicating that it is rapidly
  becoming a more accepted communications channel for enterprises.
• More than 50% of the total respondents to Ovum's survey said that they expect their
  organizations' use of SMS, social media, and email to increase over the next 12–24 months;
  slightly more than 40% said the same with regard to their use of messaging apps and push
  notifications. Overall, the trend is one of continuing growth across both traditional and newer
  communications channels.
• When asked about whether their organization's increasing use of messaging apps would impact
  their SMS traffic, and to what extent, 30% of total respondents said they expected no change.
  However, 15% said they expected their SMS usage to increase by up to 10%.
• The largest proportion of respondents to the survey said that their organizations sent up to 1
  million messages per month across all four services surveyed (SMS, MMS, instant messaging,
  and app-based push notifications). Few respondents indicated that their organizations sent more
  than 500 million messages per month; those who did represented manufacturing, media and
  content, and travel and hospitality companies, as well as telecoms service providers.
• Overall, whether targeted at consumers or employees, the survey found that communications-
  related use cases generate the most SMS traffic for enterprises, whether customer
  communications, company announcements, crisis management, or field force scheduling and
  management.
• When asked which alternatives to SMS their organizations used, a high proportion of
  respondents listed email as their main alternative for all use cases, followed by outbound voice
  calling and social media and networking.
• Price and reach are still the main decision-making factors for enterprises when selecting a
  distribution partner for their A2P SMS traffic.
• Ovum also asked respondents to share their experiences with regard to WebRTC. Fewer than
  one-third of respondents' organizations had commercially deployed a WebRTC-based service,
  were trialing WebRTC, or were considering using WebRTC. This indicates that the technology is
  still some way from mainstream enterprise adoption.

                                                               © 2016 Ovum. All rights reserved. www.ovum.com   5
Key trends in messaging
Consumers' mobile communications' behaviors are undergoing rapid transition, driven by the
increasing penetration of IP-based mobile and fixed networks and of Internet-enabled devices.
Mobile users are moving away from SMS and network-based voice and toward app-based instant
messaging and voice. The extent to which this transition occurs in any given market is dependent
on the penetration of IP-based networks and Internet-enabled devices in that market.

Although communications apps such as WhatsApp and Facebook Messenger have approximately
1 billion monthly active users (MAUs), the fragmentation in communications apps means that SMS
and network-based voice remain relevant as universal communications channels – at least for
now. Many mobile operators are seeing their P2P SMS traffic and revenues decline, but enterprise
engagement with A2P SMS is increasing, again primarily due to the universality of SMS. Even
so, all players in the messaging value chain are positioning themselves to also enable IP-based
communications services.

P2P SMS declines as use of OTT communications apps grows
The increasing popularity of OTT communications apps is causing a reduction in mobile operators'
P2P SMS traffic and revenues. This is especially so in markets with a high penetration of
smartphones and mobile broadband and those where mobile operators did not move quickly
enough to apply a defensive strategy. For example, in markets such as Spain, the Netherlands,
and South Korea, operators typically charged high per-message prices for SMS and were slow
to offer affordably priced bundles of unlimited SMS. This meant that large numbers of mobile
users in these countries adopted communications apps such as WhatsApp and KakaoTalk, which
enabled free in-app messaging.

This led to a decline in SMS traffic. For example, Spain saw its total SMS traffic fall by almost two-
thirds, from 11.8 billion messages in 2008 – the year prior to the release of WhatsApp – to 2.24
billion messages in 2014. KPN Netherlands has seen a similarly precipitous fall in its SMS traffic,
from 1.8 billion messages in 2010 to just 560 million in 2013.

At an aggregate level, Ovum estimates that in 2015, annual global SMS traffic totaled 6.07 trillion
messages, down fractionally from 6.2 trillion messages in 2014. By comparison, WhatsApp's
annual global traffic was more than double that, at 14.4 trillion messages. This gradual decline in
SMS traffic is the result of a mix of factors:
• Operators deploying mitigating strategies such as unlimited text bundles, which encourages
  their subscribers to use SMS.
• Stronger growth in SMS in developing markets, where the penetration of smartphones and
  mobile broadband lags behind that in the developed world.
• The increasing use of A2P SMS, as enterprises become more aware of the benefits of using SMS
  as a communications channel for external and internal purposes.

Meanwhile, consumers' appetite for communications apps continues to grow. Approximately
75% of users globally used these apps, according to Ovum's 2015 Consumer Insights Survey of
16,000 consumers in 16 countries. As Figure 1 shows, mobile device use continues to race ahead:
57.0% of respondents used messaging apps on their mobile phones and 18.3% used them on their
tablets. Multi-device access is also a key trend, with 36.4% of respondents using messaging apps
on their desktop or laptop PCs (multiple responses were allowed). In markets such as Brazil,
India, Indonesia, Mexico, South Africa, and Turkey, the proportion of users accessing messaging
apps on mobile phones exceeds 70%; desktop penetration is also comparable with more
developed markets, likely due to the use of Internet cafes.

                                                                  © 2016 Ovum. All rights reserved. www.ovum.com   6
Figure 1: Consumer use of messaging services, by device

                                               Do you regularly (i.e. at least once a month) make use of messaging services on any of these devices?

                                  60
                                            57.0
                                  50
  Respondents (%)

                                  40

                                  30                                   36.4

                                  20                                                            25.4
                                                                                                                           18.3
                                  10
                                                                                                                                                       2.2
                                   0
                                        Mobile phone             Desktop PC/laptop            Don’t use                   Tablet             Home games console

Note: N=11,154
Source: Ovum’s Consumer Insights survey 2015

Enterprise adoption of A2P SMS strengthens
Even as P2P SMS traffic and revenue decline, mobile operators – and elements of the enterprise
messaging supply chain in general – are seeing a rise in the use of A2P SMS by enterprises. As
Figure 2 shows, Ovum forecasts that A2P SMS traffic will increase from 1.20 trillion messages in
2015 to 1.42 trillion messages in 2018. It will then begin a gradual decline as enterprises start to
use IP-based communications to reach their customers and employees.

Figure 2: Global A2P SMS traffic, 2014–20

                                  1.6
                                  1.4
  Traffic (trillions of events)

                                                                                                1.38               1.42               1.40                   1.37
                                  1.2                                         1.30
                                                          1.20
                                  1.0   1.09
                                  0.8
                                  0.6
                                  0.4
                                  0.2
                                  0.0
                                        2014              2015                2016              2017               2018               2019                   2020

Source: Ovum

The key drivers for increased enterprise use of SMS are its universal reach and low cost. Ovum
believes that global mobile penetration (i.e. connections as a percentage of the population) stands
at 98.6% and SMS is a standard feature on all mobile devices. Enterprises across a number
of vertical industries are realizing that to quickly and inexpensively reach their addressable
customer or employee base on their mobile devices they need to use SMS.

Another factor driving the increased use of A2P SMS is enterprises' growing awareness that SMS
is becoming easier to deploy. For example, SMEs are using software that enables them to send
SMS messages to their customers. In addition, cloud communications providers such as Twilio
and Nexmo provide APIs to enterprises, enabling them to add voice and SMS to their existing
business processes. Cloud communications providers also offer voice and SMS connectivity
services and value-added services (VAS) aimed at improving the A2P SMS experience. In addition,
they partner with IT vendors to integrate communications capabilities into business software.

                                                                                                                    © 2016 Ovum. All rights reserved. www.ovum.com   7
Case study: MakeMyTrip
 MakeMyTrip is an online travel provider in India that provides booking services for hotels,
 airlines, car rental agencies, and public transport (bus and train). The Nasdaq-listed company
 offers these services both direct-to-consumer and via travel agencies and retail outlets.
 Established in 2000, MakeMyTrip is regarded as India's leading online travel company, with
 five million customers; as of 2013 it claimed 47% market share. To remain relevant and retain
 market share, MakeMyTrip has diversified into the development of digital products, recently
 launching RightStay, a luxury hotel booking app.

 Although the Internet-savvy consumer is MakeMyTrip's target audience for both its core
 product and its newer digital services, SMS is the company's key channel for customer
 communications. This is partly because travel agencies and retail outlets comprise a
 significant proportion of MakeMyTrip's business. It is also partly because of the characteristics
 of India's mobile market; the penetration of Internet-enabled devices and networks in the
 country is relatively low, particularly in rural and remote areas. In addition, those consumers
 with Internet-enabled devices typically switch off data when not using it.

 MakeMyTrip typically uses SMS to confirm essential travel details, following a message
 with an email containing additional information. For those customers who request push
 notifications, MakeMyTrip will also send an SMS when the communication carries a higher
 priority, to make sure that the customer receives the message even when they do not have a
 data connection. The company is moving away from using SMS for marketing and promotions
 because it believes that its customers regard such messages as spam. Instead, MakeMyTrip is
 using app-based push notifications as a promotional channel.

 MakeMyTrip regards technology as the heart and soul of its service. The company believes that
 it must keep pace with the demands of its core customers (i.e. Indian consumers) and that it
 must address the mobile-first dynamic of the Indian market. These factors drove MakeMyTrip
 to introduce apps, as well as create services for the feature-phone market. Its apps have been
 downloaded approximately 2 million times and generate 20% of its traffic. In addressing the
 feature-phone market, MakeMyTrip pioneered natural language speech processing for SMS
 and it offers a range of features via SMS.

 Looking forward, MakeMyTrip is deploying instant messaging across its new digital product
 line, enabling its customers to chat with its contact center service agents. The company does
 not believe that instant messaging will replace SMS in this use case; rather, it expects it to
 become a complement to voice. MakeMyTrip is also planning to add services such as location-
 based search and live updates while travelling. Ovum believes that MakeMyTrip will likely
 partner with WhatsApp, which is extremely popular in India.

A2P SMS commoditization drives innovation
To enable A2P, SMS enterprises typically work with third-party connectivity providers, including
wholesale carriers and SMS aggregators, rather than with mobile operators. These companies
have focused on building reach via direct connections with operators and partnerships with other
messaging aggregators; they provide enterprises with a range of VAS. VAS have become important
as low-cost messaging aggregators drive down the per-message price of A2P SMS, making it
difficult for higher-end providers to generate sustainable revenues solely from reselling bulk SMS
and associated services. In addition, cloud communications providers are challenging the role of
the traditional connectivity service providers.

                                                                © 2016 Ovum. All rights reserved. www.ovum.com   8
Improving quality: SMS firewalls and revenue assurance platforms
The universal availability of SMS has made it a target for fraudulent activity, which typically targets
consumers and mobile operators. Consumer-directed fraudulent activity includes spam, phishing
attacks, and the distribution of malware via links to mobile websites. Fraud that is aimed at the
mobile operator includes the use of "grey routes" and SIM farms.

Grey routes are defined as those for which there is no commercial agreement between the sender
(typically a low-cost aggregator) and the mobile operator on whose network A2P SMS traffic is
terminated, which means that the operator does not receive SMS termination revenues. Once an
operator has identified and shut down grey routes into its networks, fraudsters often use SIM farms
as an alternative. SIM farms operate banks of SIM cards and take advantage of the consumer price
plans many operators offer, which include large or unlimited buckets of SMS. In this scenario, the
operator risks losing revenues because it cannot distinguish between a P2P SMS and what should be
a higher-value A2P SMS.

More mobile operators are deploying SMS firewalls and revenue assurance platforms from vendors
such as Anam, Adaptive Mobile, and Symsoft to detect and report on traffic that is being terminated
on their networks. These platforms allow operators to identify SMS spam or SMS that originates from
a grey route or a SIM farm and block the spam or shut down the grey route or SIM farm. Although
blocking SMS messages may disrupt legitimate traffic from enterprises that are unaware of how
their A2P SMS traffic is being routed, the operator can work with the affected brands to recoup their
revenues and provide a higher-quality service. The enterprises may pay higher prices, but their traffic
will be terminated legitimately either directly on the operator's network or through an approved
"white" route.

Mobile operators that use SMS firewalls and revenue assurance platforms to block SMS spam and to
shut down grey routes and SIM farms will help improve enterprise messaging quality and reliability.
As a result, they will help build brand confidence in SMS as a mobile communications channel.

Improving effectiveness: analytics, insights, and verification
The commoditization of A2P SMS means that connectivity service providers are offering VAS that
enable them to generate additional revenues. Some connectivity services providers offer their mobile
operator and aggregator customers managed services such as SMS firewalls. They may also offer
their enterprise customers analytics and reporting tools, customer engagement platforms for mobile
loyalty and couponing, and the ability to use SMS for two-factor authentication.

Cloud communications providers offer their enterprise customers APIs that enable them to verify
phone numbers (Verify API) and to find out information about a number (Number Insights API). These
services increase the reliability of the communications between the enterprise and its target audience.

Improving reach: a significant role for partnering
As the A2P SMS market evolves, two types of partnership are emerging: partnerships between
cloud communications providers and original equipment manufacturers and partnerships between
aggregators and mobile operators. Both of these types of partnerships will further open up the
enterprise messaging market by making it easier for enterprises to access and use A2P SMS (and
other forms of communications).

Cloud communications companies see value in working with enterprise software companies to better
access the enterprise market. In turn, enterprise software companies see value in working with a
cloud communications provider to allow their customers to more easily integrate messaging into
their business processes. For example, Twilio has partnered with Microsoft and IBM and Nexmo is
working with SAP, Salesforce.com, and Marketo.

                                                                     © 2016 Ovum. All rights reserved. www.ovum.com   9
Mobile operators are also considering how they can play a bigger role in providing A2P SMS, beyond
the sale of bulk SMS and SMS termination. Some operators are already working with aggregators
on a "business-as-a-service" basis. In this type of partnership, the aggregator provides the operator
with the hosted infrastructure that allows it to target the enterprise market directly. Infobip is one
example of an aggregator that is already working with a number of mobile operators on this basis.

Service providers lay foundations for IP-based communications
A2P SMS is key for enterprises in terms of their communications with customers and employees,
but it is typically part of a multichannel engagement strategy that also includes outbound voice
and email and social media and OTT communications apps. The providers of connectivity services,
communications infrastructure, and cloud communications are positioning themselves to provide
IP-based communications services to their enterprise customers.

Chat apps will play a central role in the next generation of A2P communications. A large proportion
of consumers regularly use an OTT communications app to access services such as messaging and
voice and video calling. It is therefore logical that enterprises will want to interact with consumers
via their chat apps; indeed, this is already happening in Asia, where enterprises are engaging with
the users of the local apps WeChat, Line, and Kakao. The next stage of development will see other
chat apps around the globe opening their platforms to enterprises. They will do this by working with
connectivity service providers, cloud communications companies, and communications infrastructure
vendors.

Other IP-based services and technologies such as web chat (text, voice, and video), click-to-call (for
example, via Skype), and WebRTC-based voice or video chat/conferencing will also be important.
These types of services are mostly accessed via the desktop, but consumers will become more
accustomed to accessing them via their mobile devices. (See below for more detail on enterprise
perspectives on WebRTC.)

OTT communications apps seek greater engagement with enterprises
As previously mentioned, the Asia-headquartered chat apps WeChat, Line, and Kakao already
generate significant revenue from allowing enterprises to access or provide services to their
respective user bases. Enterprises can use these instant messaging apps to send their customers
advertising and promotional offers, to provide games and content, to offer payments and financial
services, and to enable taxi, flight, or hotel bookings among other services. In addition, Line is
enabling enterprises to add chat bot capabilities to their Official Accounts so that brands can further
automate some of their interactions with customers, for example enabling users to access news,
information, or customer service functions.

Elsewhere, efforts by communications apps to engage with enterprises have offered neither the
breadth of capabilities nor produced revenues seen in Asia. The communications apps typically
offer games or content channels or allow brands to market to their users. Facebook is trialing P2P
payments and has established the Businesses on Messenger service. Initially both initiatives were
limited to the US, but in March 2016 Dutch airline KLM announced that its customers can opt-in to
receive their booking confirmation, check-in notification, boarding pass, and flight status updates via
Facebook Messenger. Facebook has referred to KLM as its first airline partner, indicating that further
such partnerships are in development.

In January 2016 WhatsApp announced that it intends to develop tools that will allow its users to
communicate with enterprises and other organizations. This is a potential game-changer for A2P,
given the chat app's 1 billion-strong MAU base. The tools that WhatsApp likely intends to build would
allow enterprises and other types of organizations to use its service in the same way that they use
A2P SMS. It would also mean that WhatsApp becomes a legitimate communications channel within

                                                                   © 2016 Ovum. All rights reserved. www.ovum.com   10
the enterprise. At the moment there is a certain amount of use of "shadow" IT or "stealth" IT, where
employees unofficially use apps such as WhatsApp to set up chats with their colleagues or the
general public.

Another potential game-changer is Facebook’s addition of chat bot capabilities for Facebook
Messenger, announced at its F8 developer conference in April 2016. As mentioned previously,
chat bots will enable developers to create automated instant messaging interactions for accessing
content (e.g. news, weather, health, games, entertainment), e-commerce, and customer care among
other functions. At launch, Facebook had lined up partnerships with brands such as The Wall Street
Journal, CNN, Bank of America, Burger King, Expedia, Rogers, Salesforce, and UNICEF, although
only a handful of companies were live with the capability.

 Case study: Nexmo
 Cloud communications company Nexmo is one of the new breed of service providers focused on
 giving developers and enterprises APIs and connectivity services to make it easier to integrate
 communications capabilities into existing software platforms. Companies such as Nexmo and
 Twilio are reinvigorating the enterprise messaging market by making it more accessible to
 a wider cross-section of companies, spanning multiple industry verticals and markets and
 company sizes.

 Since its inception in 2010, Nexmo has amassed more than 100,000 customers across multiple
 verticals, including thousands of enterprise accounts. In 2015 the Nexmo platform supported 4.4
 billion API calls – up from just 116 million in 2011. More than half of the company's revenue is
 generated by its Messaging API, but the revenues from its newer Voice, Verify, Number Insight,
 and Chat App APIs are growing. Nexmo's KPIs suggest that it is addressing a previously unmet
 demand from enterprises for simpler access to communications capabilities and for associated
 VAS. Telcos and traditional messaging aggregators have not adequately addressed this demand,
 having tended to focus on connectivity services.

 Nexmo seeks to cover all facets of communications with its seven public APIs (Messaging, Voice,
 Number Insight, Verify, US Short Codes, Developer, and Conversion). Most of the APIs are aimed
 at enabling the integration of the services with which they are associated. However, the Verify
 and Number Insight APIs allow developers and enterprises to check whether a number is still
 valid and to find out other information about that number prior to using it. These two APIs enable
 enterprises to be more effective in their communications with customers and employees.

 Nexmo has direct connections with approximately 300 operators and indirect connections with
 approximately 1,400 (via aggregators). It uses Adaptive Routing technology to find the best route
 to deliver an SMS into a market. Providing a wide reach means that enterprises with operations
 in multiple countries can offer a consistent communications experience for their customers and
 employees.

 In addition to working with enterprises across traditional industry verticals, Nexmo is working
 with organizations in emerging industry verticals, including OTT communications application
 providers (chat apps). The company provides approximately 40 chat apps with either its Verify or
 Messaging API for two-factor authentication via SMS; these companies include WeChat, Viber,
 and Line. As the penetration of chat apps grows, enterprises are starting to use them to interact
 with their customers and employees. So far, "official" enterprise use of chat apps occurs mostly
 in Asia, although "unofficial" enterprise use of chat apps is a global trend. Nexmo is keen to
 enable enterprises around the world to access not only the users of apps such as WeChat, Line,
 and Kakao, but also the users of chat apps that are more popular in other parts of the world.

                                                                 © 2016 Ovum. All rights reserved. www.ovum.com   11
Enterprise use of messaging – current status
In November and December 2015 Ovum conducted an Enterprise Messaging survey on behalf
of Tata Communications, canvassing 575 industry executives across 12 industry verticals. The
objective of the survey was to gain insight into respondents' current and future use of A2P SMS,
including traffic volumes, use cases for consumers and employees, and the use of SMS in the
context of other communications channels such as MMS, email, outbound voice, and instant
messaging (OTT messaging). The survey also canvassed respondents on their current and future
use of IP-based communications services, including OTT messaging and WebRTC.

SMS remains key, but instant messaging is gaining
The Enterprise Messaging survey found that of the four main ways enterprises use mobile
messaging services to contact their customers – SMS, MMS, app-based push-notifications, and
instant messaging – SMS remains the primary communications channel for enterprises overall.
In total, 66% of total respondents contacted some or all of their customers via SMS in an average
month and 47% contacted some or all of their customers using instant messaging, compared to
43% each for MMS and app-based push notifications.

Across all verticals the highest proportion of respondents contacted some or all of their
customers via SMS. In some verticals – manufacturing, Internet, device vendor, and telecoms
service providers – 80% or more of respondents did so. Instant messaging was not far behind: in
half of the verticals canvassed, the next-highest proportion of respondents said they contacted
some or all of their customers via instant messaging each month. MMS ranked next-highest to
SMS in the manufacturing, device vendor, and Internet verticals; app-based push notifications
were next-highest to SMS in the media and content, telecoms service provider, and travel and
hospitality verticals.

Figure 3: Mobile messaging services used to contact customers

                  What proportion of your customers does your organization contact via the following types of messaging in an average month?
                      SMS           MMS           App-based push notification        Instant message

     Up to 10%                      22                 22         16            17

       11–25%              13       9        10    8

       26–50%              14       7         9    11

       51–75%          9    4   6        6

      76–100%         8 2 3     5

    Don’t know             12                18             18          16

 Not applicable                     22                             39                            39                          38

                  0                 20                 40           60            80               100            120             140
                                                                     Respondents (%)

Note: N=514
Source: Ovum Enterprise Messaging Survey 2015

In terms of organizations' typical monthly volume of messages, the survey results show that SMS
is the channel used by most respondents to contact their customers. By channel, the highest share
of respondents, 37%, said that their organizations sent up to 1 million SMS messages per month,
followed by MMS and instant messaging (24% each) and app-based push notifications (23%).

                                                                                                         © 2016 Ovum. All rights reserved. www.ovum.com   12
As Figure 4 shows, most respondents' organizations sent fewer than 1 million messages per
month, which reflects the fact that 59% of survey participants worked for companies with up
to 250 employees. Most, but not all, smaller companies would have fewer customers, so their
external communications would be more targeted and possibly reactive – appointment reminders,
for example. This type of traffic would be irregular, unlike scheduled SMS mass marketing
campaigns conducted by a large media companies. Smaller companies would also typically not
have the technical resources to establish internal communications.

Figure 4: Total messages sent per month

                                 What is your organization’s typical monthly volume of total messages sent currently?

                                     SMS       MMS         App-based         Instant message

              Up to 1 million

                 1-10 million

               11-50 million

              51-100 million

            101-500 million

      501 million to 1 billion

         More than 1 billion

              Not applicable

                 Don’t know

                                 0           20           40            60          80           100           120       140         160
                                                                              Respondents (%)

Note: N=498
Source: Ovum Enterprise Messaging Survey 2015

SMS is consistently used for customer-facing activities, but use varies for employee
communications
Ovum canvassed survey respondents on their use of SMS for communications with their customers
and their employees. Some of the SMS use cases surveyed were common to both customers
and employees: communications (such as announcements, polls and surveys, and alerts and
notifications), crisis management, and user or transaction authentication. Others were specific to
employee communications only: field force communications and recruitment and payroll.

The survey found that, for customer-facing activities, a high proportion of respondents overall and
per vertical used SMS for all of the use cases. This indicates that enterprises universally accept
SMS as a communications channel and that they are happy to use it across multiple touchpoints
with their customers.

Organizations' use of SMS for contacting employees, suppliers or partners is a different story,
with significant variation between respondents' use of SMS. This indicates that enterprises have
different priorities for SMS when using it for internal communications. Overall, 37% of respondents
said their organization used SMS for company announcements, polls and surveys, and alerts and
notifications. The next-highest proportion of respondents, 33%, said that they used SMS for crisis
management. Just 13% said their organizations used SMS for recruitment and payroll.

                                                                                                   © 2016 Ovum. All rights reserved. www.ovum.com   13
Figure 5: Enterprise use of messaging to reach employees, suppliers, or partners

                                                      Does your organization use SMS to reach your employees, suppliers or partners?

                                                          Yes, we use SMS         No, we don’t use SMS         Don’t know or not applicable

                 User or transaction authentication                          21                           53             26

                          Recruitment and payroll                       13                               62              26

                      Field force communications,
                                                                       29                           45                   26
                     scheduling, and management

                               Crisis management            33                                       45                  22

              Company announcements, polls and
                                                                 37                                 42                   20
              surveys, and alerts and notifications
                                                      0           20              40          60              80           100
                                                                                  Respondents (%)

Note: N= 486
Source: Ovum Enterprise Messaging Survey 2015

Use of SMS was highest among respondents from the telecoms service provider and central and
local government verticals. The high usage of SMS among telecoms service providers is likely
because they are more aware of the benefits of the technology for internal as well as external
communications and because they can use their own infrastructure, reducing costs. Meanwhile
central and local government departments are held publicly accountable for their expenditure;
SMS is a communications technology that has helped them to reduce the cost of internal
communications while at the same time improving the efficiency of their operations.

Communications-related activities are predominant use cases for external and internal
interactions
Overall, most of an organization's SMS traffic is communications-related, whether directed at
customers or at their employees, partners, and suppliers. The use of SMS for communications-
related activities highlights organizations' first priority: keep customers and employees informed
and engaged. Once this priority is met, enterprises typically expand their use of SMS to resolve
other business challenges. This means that enterprise priorities can shift from communications
to engagement – time-dependent special offers or surveys and polls, for example.

Ovum's survey found that, for customer-facing traffic, 32% of respondents overall said that their
organizations sent up to 1 million SMS messages per month focused on customer communications.
A further 25% said they sent up to 1 million per month for information and entertainment and 23%
sent up to 1 million per month for crisis management. For internal traffic, the highest proportion of
respondents, 33%, again said that they sent up to 1 million SMS messages per month for company
announcements, polls and surveys, and alerts and notifications, followed by 23% for field force
communications scheduling and management and 22% for crisis management.

SMS is also the most-used communications channel by organization department across all the
industry verticals canvassed, with sales teams being the highest users; 38% of respondents said
their sales departments used SMS. The high response rate for the sales department is again
indicative that SMS is fairly commonly used by organizations to contact customers during the
sales process, for purposes such as confirming a purchase, providing order tracking, confirming
delivery, and requesting feedback.

                                                                                                     © 2016 Ovum. All rights reserved. www.ovum.com   14
Email, voice, and social media are the main alternatives to SMS
Ovum also canvassed survey respondents on their use of alternatives to SMS for multiple use cases.
The alternatives to SMS comprised mature services such as outbound voice, email, IVR, and MMS
and newer capabilities such as app-based push notifications, messaging apps, and social media.

Across all use cases, the main alternatives to SMS that respondents said their organizations used
when communicating with their customers consisted of a mix of the old – outbound voice and email
– and the new – social media. Email far outstripped both social media and outbound voice as the
most-used alternative to SMS. Consumers are long-accustomed to supplying service providers with
their email address in return for receiving newsletters, product announcements, and special offers.

Behind email, social media leads outbound voice for voting and polling, customer communications,
time-dependent special offers, ticketing, payments and donations, and information and
entertainment. This indicates enterprises' recognition of the central role that social media plays in
their customers' lives and their willingness to embrace social media themselves as a way of staying
closer to their customers.

However, outbound voice leads social media for crisis management and user/transaction
authentication, which makes sense from the perspective that outbound voice is a more direct
form of communication than social media. For crisis management, outbound voice would be more
effective for a one-to-one use case such as a financial institution contacting a customer about a
fraud alert.

Destination reach and price rate highly in choice of distribution channel
It appears that there remains a lack of awareness among enterprises regarding the importance
of ensuring that their A2P SMS traffic is delivered reliably and with a good quality of experience.
Ovum's Enterprise Messaging survey found that for 67% of respondents overall price remains either
very important or important in their decision to use a distribution partner. Destination reach was
a close second, with 64% of respondents identifying it as very important or important. Quality of
routing, transparency/reporting, and reputation all ranked lower, indicating that most enterprises
seem unwilling to pay a premium to ensure that they receive a good quality of service from a
reputable supplier of A2P SMS.

When split by enterprise vertical, 90% of respondents from the financial services industry stated that
price was either very important or important in their decision to use a distribution partner, ahead of
destination reach and quality of routing. The majority of survey respondents in this vertical focusing
on price at the expense of the quality of routing and the reputation of the distribution channel is
surprising, given that financial services providers are typically keen to ensure their customers'
privacy and security.

A higher proportion of respondents from the central and local government enterprise vertical, 76%,
indicated that the reputation of the distribution channel was very important or important for their
organizations, ahead of price and destination reach at 63% each. Central and local governments
also hold significant amounts of confidential data about their clients, so the survey results seem
to indicate that respondents from this vertical are more aware of ensuring that they work with a
reputable supplier of A2P SMS.

                                                                  © 2016 Ovum. All rights reserved. www.ovum.com   15
Enterprise use of messaging – future developments
Consumers' communications behavior will continue to evolve over the next 12–24 months, which
means that the ways in which enterprises communicate with their customers and their employees,
partners, and suppliers will also need to change if they are to remain relevant. The communications
channels in use today will remain important through 2017 and 2018, but new technologies and
platforms are emerging. It will be vital for enterprises, and the wider value chain, to understand to
what extent their use of existing communications channels will change over the coming two years
and to evaluate which, if any, of the emerging technologies has promise as a communications
channel.

More than half of enterprises expect their use of SMS, social media, and email to increase
Over the next 12–24 months, the prevailing trend with regard to enterprise use of traditional and
recently emerged communications channels will be one of growth. As Figure 6 shows, Ovum's
survey found that more than half of total respondents expected their organization's use of SMS,
social media, and email to increase over the next 12–24 months. In addition, 44% and 43% of
total respondents respectively said that their use of messaging apps and push notifications would
grow; this growth will likely be in line with the increasing penetration of smartphones and mobile
broadband.

Figure 6: Expected change in use of outbound communications channels

                              Over the next 12–24 months, how do you expect your organization’s use of the following services to change?

                                  Increase by over 25%     Increase by 11-24%        Increase by up to 10%       No change (0% increase)
                                  Decline by more than 10%      Decline by up to 10%       Not applicable/don’t use

             Social media/
                                             14                 15                          23                               29 2      3            15
         social networking

          Messaging apps            7                 13                         24                                 30 2 2                          23

         Push notifications          8                     15                    20                                 31 1     4                      21

                     Email                  12                  18                                27                                  28 1     6     8

          Outbound voice                9         8                        22                                         38 1 3                        20

                     MMS             8       5                        21                                       36   3 2                             25

                      SMS                             20             13                      21                                            35 2 2    8

                              0                            20                   40                      60                       80                  100
                                                                                      Respondents (%)

Note: N=128
Source: Ovum Enterprise Messaging Survey 2015

The results indicate that enterprises will continue to invest in their use of multiple
communications channels, allowing them to reach a higher proportion of their customers
and employees. It is also likely that enterprises will tap into new use cases across additional
departments for services such as SMS, which will also result in traffic growth.

A higher proportion of respondents from the manufacturing, telecoms service provider, central
and local government, and travel and hospitality verticals indicated that their use of various
communications channels would increase, particularly SMS, email, and social media and
networking.

                                                                                                             © 2016 Ovum. All rights reserved. www.ovum.com   16
OTT messaging apps are expected to be complementary to SMS rather than a substitute
OTT communications apps have achieved extraordinary adoption among consumers and so it
is likely that there will be some replacement of A2P SMS with OTT communications apps. This
is even more likely now that WhatsApp has committed to enabling its users to interact with
enterprises via its messaging app, and because Facebook and Line have both added bots to their
respective apps which are aimed at automating enterprises’ interactions with their customers –
whether to provide content, send advertising and promotions, enable e-commerce, or facilitate
customer care.

Figure 7: The impact of OTT messaging apps on SMS traffic within 12–24 months

                                                       Thinking of your organization’s use of OTT messaging apps,
                                                       how will this affect your organization’s total volumes of SMS
                                                       in external communications over the next 12–24 months?

                            Not applicable/don’t use                                                                   40

                          Decline by more than 10%         2

                               Decline by up to 10%        2

                           No change (0% increase)                                                    30

                             Increase by up to 10%                           15

                                Increase by 11-24%                 6

                              Increase by over 25%             5
                                                       0       5       10     15        20     25       30     35       40
                                                                                  Respondents (%)

Note: N=458
Source: Ovum Enterprise Messaging Survey 2015

To understand the impact of OTT messaging apps on enterprises' use of SMS, Ovum asked
Enterprise Messaging survey respondents to indicate to what extent they expected such apps
to affect their total volumes of SMS traffic. Overall, 30% of respondents expected there to be no
change in their organizations' use of SMS for external communications as a result of their own
use of OTT messaging apps. The survey results indicate that, if anything, enterprise use of OTT
messaging apps will increase SMS traffic, with 26% of respondents saying that they expect their
organizations' use of SMS to grow. This is likely because enterprises will probably use an OTT
messaging app to start a conversation or a communication with their customer and at some point
the communication will switch to SMS. For example, the enterprise might use SMS to send a
verification code for a transaction initiated via the messaging app.

Enterprise use of WebRTC
Web Real-Time Communications (WebRTC) is an open source project that Google initiated in
May 2011. It seeks to create a framework, protocols, and APIs for real-time voice, video, and
data communications delivered through a WebRTC-enabled browser via multiple device types
(including desktop, mobile, tablets, and set-top boxes) and multiple network technologies. Google's
Chrome, Mozilla's Firefox, and the Opera mobile browser already include native WebRTC, though
not all WebRTC capabilities are supported. Google, Mozilla, and Opera account for the majority
of the browser market, but they are more consumer-oriented; Microsoft's Internet Explorer
and Apple's Safari – which currently do not enable WebRTC – have greater penetration in the
enterprise market. Numerous live, commercial WebRTC services and trials are already underway
across multiple industries and use cases. There is a strong weighting toward video- and audio-
conferencing for customer care, remote learning, and services for those working in the field.

                                                                                                    © 2016 Ovum. All rights reserved. www.ovum.com   17
High interest in WebRTC, but few deployments
As Figure 8 shows, Ovum's Enterprise Messaging survey found that only 29% of respondents
said that their organizations had commercially deployed a WebRTC-based service, were trialing
WebRTC, or were considering using WebRTC. Almost half of the respondents, 45%, said they had
not considered using WebRTC, indicating that the technology is still some way from achieving
significant penetration in the enterprise market.

Not surprisingly, the telecoms service provider vertical exhibited the highest involvement with
WebRTC, with 53% of respondents stating that their organizations had commercially deployed or
were trialing WebRTC or were considering WebRTC. Telcos are typically engaging with WebRTC to
understand the impact that it may have on their existing services, but most have deployed it as an
enterprise communications channel rather than launching a direct-to-consumer service. The next-
most engaged verticals are retail and wholesale, manufacturing, central and local government, and
travel and hospitality, indicating that WebRTC use cases apply to multiple industries.

Figure 8: Enterprise use of WebRTC
                                                     Does your organization use WebRTC?
                                                                             Yes, we have at least one
                                                                             commercial deployment
                                                                             6%      Yes, we are trialling WebRTC
                                                                                     5%

                                     No, and we have not                                   Don’t know
                               considered using WebRTC                                     26%
                                                   45%

                                                                                 No, but we are considering
                                                                                 using WebRTC
                                                                                 17%

Note: N=456
Source: Ovum Enterprise Messaging Survey 2015

Customer care and customer relationship management is the most popular use case for
WebRTC among survey respondents (46%), followed by technical support (44%) and remote
teaching/training (40%). The most-widely deployed WebRTC service at the moment is audio/video
conferencing, which is an ideal communications channel for each of the above use cases. For
example, some companies have built WebRTC-based call centers that enable agents to make and
receive browser-based calls without customers downloading an app or leaving the website.

Figure 9: Enterprise use cases for WebRTC
                                                            For what purpose does your organization use or plan to use WebRTC?

       Customer care/customer relationship management                                                                     46
                                       Technical support                                                             44
                               Remote teaching/training                                                       40
           Collaboration between internal business units,                                            32
                                   suppliers, or partners
                   Providing direct-to-consumer services                                        29

                                           Telemedicine             5

                                                   Other        2
                                                            0           10            20             30         40             50
                                                                                      Respondents (%)

Note: N=132
Source: Ovum Enterprise Messaging Survey 2015

                                                                                                     © 2016 Ovum. All rights reserved. www.ovum.com   18
WebRTC expected to substitute A2P SMS
When asked about the likelihood of WebRTC replacing their organizations' A2P SMS traffic, the
majority of respondents, 47%, said that they expected WebRTC to substitute from up to 10%
to more than 25% of A2P SMS. This substitution might occur if WebRTC makes it easier, less
expensive, and more productive for enterprises to contact their customers or employees using
browser-based audio or video conferencing, or if it can be used to send large files (such as
product information or manuals) via the WebRTC Data Channel. Today an organization might
use SMS to enable simple text-based communications and transactions, but in the future that
organization may switch to WebRTC-based services for more meaningful interactions with
customers and employees.

However, 34% of total respondents said that they did not think that WebRTC would have any
impact on their organizations' A2P SMS traffic over the next 12–24 months. This is likely because,
for some use cases in some verticals, there is little overlap between WebRTC and SMS, which
means that the two technologies will coexist.

A higher proportion of respondents in the manufacturing and the travel and hospitality industries,
75% and 60% respectively, said that they expected WebRTC to replace their organizations' A2P
SMS traffic to some extent. In the manufacturing industry, WebRTC could replace A2P SMS for use
cases such as collaboration, fault management, and product marketing. In travel and hospitality
WebRTC could be used for purposes such as customer communications and sales and marketing.

Summary
SMS enjoys widespread use among enterprises and is set to remain a key communications
channel for organizations in all verticals for at least the next two years, even as consumers'
communications behaviors transition toward IP-based communications services. Connectivity
service providers, aggregators, cloud communications companies, and vendors are working to
ensure that A2P SMS continues to play a central role in enterprise messaging, while at the same
time positioning themselves to help enterprises add IP-based communications.

Ovum's Enterprise Messaging survey found that SMS is used widely within all verticals for a range
of customer and employee communications use cases. Although SMS use is uniformly high across
all verticals for customer-facing communications use cases, there is variation in the use of SMS for
employee-facing communications depending on the use case and the vertical. This finding confirms
that enterprises' priorities differ markedly across verticals when it comes to using SMS for internal
communications, but are similar with respect to their communications with customers.

The use of instant messaging by enterprises is also growing and it is the second-most-used
mobile messaging channel behind SMS in terms of organizations contacting some or all of their
customers at least once a month. SMS continues to generate the most traffic for enterprises,
closely followed by instant messaging and MMS.

Enterprises do use other types of communications channels, including outbound voice, email,
and social media and networking. Their use of these channels varies depending on the industry
vertical, the use case, and the target audience. However, when asked about which service
their organizations use or would use as an alternative to SMS, the highest proportion of total
respondents indicated that their organizations preferred email, followed by outbound voice and
social media.

                                                                 © 2016 Ovum. All rights reserved. www.ovum.com   19
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